Nearly one year after hedge fund billionaire Bill Ackman stepped onto a New York City stage to announce an allegiance with Valeant Pharmaceuticals, his Pershing Square hedge fund finally owns shares of the company.
Ackman’s hedge fund owns a nearly a 5% stake in Valeant, Reuters first reported on Monday. It’s a large stake for Pershing Square, a $3.3 billion bet that represents a big chunk of its portfolio.
When Ackman first teamed up with Valeant CEO Mike Pearson in April 2014 to back Valeant’s effort to buy Allergan, Ackman’s hedge fund disclosed a big stake in Allergan. At the time, Ackman made clear that while he had purchased Allergan’s stock, the company he really wanted to own was Valeant. “This is not your typical global pharmaceutical company that has the same product introduced in, you know, a thousand countries,” Ackman said at the time about Valeant. “What they do is they look for markets and opportunities and products that are niche, products that offer attractive growth and good kind of competitive dynamics—both on a product basis, on a geography basis. And they’ve done a remarkable job.”
Pearson’s first adventure with Ackman did not work out as planned. Allegan fought back tenaciously against Valeant’s hostile effort to buy the Botox maker and eventually found a different partner, agreeing to a $66 billion acquisition from Actavis. The deal still worked for Ackman since his hedge fund owned shares of Allergan. In fact, the deal drove Pershing Square’s excellent returns in 2014. “I learned a great deal,” Pearson told CNBC about the Allergan takeover experience. “I do every day I go to work.”
Now, Ackman is back and this time he actually owns Valeant stock. The pharmaceutical sector has experienced a recent wave of mergers, and biotech and specialty pharma stocks have become the stomping grounds of hedge funds. Valeant itself recently struck a deal to buy Salix Pharmaceuticals for $14 billion. But this time around Ackman will not be following his normal playbook. Instead, he has reportedly taken a passive position in Valeant, meaning that he will not be practicing his brand of activist investing, where he works to drive the behavior of a company in which he has a minority stake.
Still, Ackman might have an angle to play. In the case of Allergan, his moves were so aggressive that Allergan accused Ackman of operating an insider-trading scheme for buying a stake in Allergan when he knew an acquisition offer for the company was coming from Valeant. Ackman’s hedge fund currently owns a big stake in Zoetis, a company that some have speculated could be a target for Valeant.
Shares of Valeant, which have soared since Pearson took over as CEO in 2008, are already up another 40% this year. “I look at a chart like this and I say, ‘we’re kind of late to this party,’ Ackman said in April 2014 about Valeant’s stock. “But I actually think that the party will go on.” Ackman is betting on the Valeant stock party continuing in 2015.
By Nathan Vardi